Abstract
This study is an effort to explain and establish a relationship among foreign direct investment, financial development and economic growth in Saudi Arabian context for the period of 1970 to 2015 by employing Vector Auto Regression (VAR) and modified Granger Casualty Models. The result of Johansen co-integration test illustrates that no long run co-integration can be established among the variables. VAR has established a link between economic growth, financial development and foreign direct investment. The Granger causality test also confirms that economic growth causes foreign direct investment and financial development which is a unidirectional causality running from economic growth towards foreign direct investment and financial development. No significant causality can be observed empirically between foreign direct investment and financial development. This feature can be attributed to the fact that Saudi Arabian economy is still heavily dependent on its oil resources which is the driving force behind growth. Impulse Response Function has been utilized in order to observe the response to the shocks among the variables.
Highlights
Introduction and Theoretical BackgroundIn order to substantiate the growth of economy, countries have kicked off multiple set of reformation in the economies
This paper aims to unfold the linkage among the foreign direct investment, financial development and economic growth in the Saudi Arabian economy
This research is an endeavor in order to illuminate and form a link among foreign direct investment, financial development and economic growth in Saudi Arabia for the span covering from 1970 to 2015 by employing modified Granger casualty model
Summary
In order to substantiate the growth of economy, countries have kicked off multiple set of reformation in the economies. Studies manifest that economies incorporating growth led programs stimulates the economic liberalization which leads to the inflows of foreign direct investment. FDI reveals itself in the shape of TNCs, which link with the local economy and set up backward and forward linkage in the economy Further it creates spillover advantages for the local firms in terms of enhancing the efficiency. Likewise; there is promising opportunities in term of employment opportunities In this line, this paper aims to unfold the linkage among the foreign direct investment, financial development and economic growth in the Saudi Arabian economy. In line with foreign direct investment, financial development is central to stimulate the economic growth of the economies (Levine, 2005; Demirguc –kunt and Levine, 2008). The Saudi vision 2030 aims to enhance the foreign direct investment from the present position of 3.8 percent to 5.7 percent in 2030 and assist in escalating the GDP size (rank wise) from 19th to 15th in the global economy by the stipulated time frame
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